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ELECTIVE 3 – PUBLIC FINANCE

TOPIC 2: Nature and Scope of Public Fiscal Administration and Constitutional and Legal Framework of
Public Fiscal Administration

NATURE AND SCOPE OF PUBLIC FISCAL ADMINISTRATION

PUBLIC FISCAL ADMINISTRATION

 It refers to the formulation, implementation and evaluation of policies and decisions on taxation and
revenue administration; resource allocation, budgeting and public expenditure; public borrowing and
debt management; and accounting and auditing.

SCOPE OF PUBLIC FISCAL ADMINISTRATION:

1. Fiscal policy formulation
2. Taxation and revenue administration
3. Budgeting and expenditure
4. Public borrowings and debt management
5. Accounting and auditing

FISCAL POLICY FORMULATION

 Fiscal policy is the government’s policy on the generation of its resources through taxation and/or
borrowing, as well as the setting of the level and allocation of expenditures.
 Three components:
 Revenue generation policy
 Expenditure policy
 Debt management policy

Revenue Generation Policy

 Revenue is defined as the cash flow which does not increase the liability of the government.
 Source of Revenue: (1) Tax Revenue – revenues generated from taxes; (2) Non-tax Revenue –
recurring revenues other than taxes.

Expenditure Policy

 Expenditures - a tool for effectively implementing public policy.

 Funds are disbursed for the efficient delivery of services to the public and to help in economic growth
by supporting priority sectors.
 The government ensures that the level of expenditures is consistent with the approved surplus/deficit
program for the year.
 Classification: (1) Capital Outlay, (2) Current Operating Expenditures (Personnel Services,
Maintenance and Other Operating Expenses)

Debt Management Policy

 It is the policy of the government to attain a manageable debt level.

 This is one way where the country can afford to pay its maturing liabilities as scheduled.
 Normally, borrowings are incurred to finance development projects, but today, it is used as budget
support for various government programs and projects.
Fiscal Institutions:

1. Development Budget Coordination Committee (DBCC)

It was created on May 14, 1970 through the Executive Order No. 232 creating the Presidential
Development Budget Committee (PDBC) and enumerating its functions and objectives.

Later, on March 1, 1972, the Integrated Reorganization Plan renamed the PDBC to its current
appellation and attached it to the NEDA. In the same year, on September 22, Presidential Decree No.
136 was issued, amending the Integrated Reorganization Plan to include the Executive Secretary in the
Membership of the DBCC. In July 25, 1987, Executive Order No. 292 was issued to reorganize the
NEDA including the DBCC to its composition today.

The role of the DBCC is primarily to review and approve the macroeconomic targets, revenue
projections, borrowing level, aggregate budget level and expenditure priorities and recommend to the
Cabinet and the President of the consolidated public sector financial position and the national
government fiscal program.

Functions of the DBCC are as follows:

 Recommend for Presidential approval the level of the annual government expenditure program
and the ceiling of government spending for economic and social development, national defense,
general government and debt service.
 Recommend to the President the proper allocation of expenditures for each development
activity between current operating expenditures and capital outlay, and
 Recommend to the President the amount set to be allocated for capital outlay under each
development activity for various capital or infrastructure projects.

Aside from what was explicitly mentioned in the EO 232, listed below are other major functions of the
DBCC:
 The assessment of the reliability of revenue estimates;
 The recommendations of appropriate tax or other revenue measures and the extent and type of
the borrowings; and
 The conduct of periodic review and general examination of costs, accomplishments and
performance standards applied in undertaking development projects.

Membership of DBCC:
The Committee is composed of the principals of the four member agencies and is chaired by the
Department of Budget and Management (DBM) Secretary. There is also an Executive Technical Board
(ETB), which serves as the clearing-house of the DBCC and consists of the Undersecretaries and
Directors of the DBCC member agencies.

The members of the DBCC have the following specific responsibilities:

 Department of Budget and Management (DBM) Secretary – resource allocation and
management.
(Amenah F. Pangandaman – current DBM Secretary)
 Department of Finance (DOF) Secretary – revenue generation and debt management.
(Ralph Gonzalez Recto – current DOF Secretary)
 National Economic Development Authority (NEDA) Secretary – overall macroeconomic
policy.
(Arsenio M. Balisacan – current NEDA Secretary)
 Representative from Office of the President (OP) – Presidential oversight.
(Ferdinand Romualdez Marcos, Jr. – current President of the Philippines)
 Bangko Sentral ng Pilipinas (BSP) Governor – monetary measures and policies.
(Eli M. Remolona, Jr. – current BSP Governor)

2. Implementing Agencies – administrative instrumentalities and agencies of the government.

Example: Department of Education, Department of Agriculture, Department of Interior and Local
Government, Department of Justice, etc.
 3. Congress – legislative body of the government.

4. Commission on Audit (COA)

 Philippines’ Supreme State Audit Institution.
 Examine, audit and settle all accounts pertaining to the revenue and receipts of, and
expenditures or uses of funds and property owned or held in trust by, or pertaining to, the
government.
 Promulgate accounting and auditing rules and regulations including those for the prevention and
disallowance of irregular, unnecessary, excessive, extravagant or unconscionable expenditures,
or uses of government funds and properties.
 Submit annual reports to the President and the Congress on the financial condition and
operation of the government.
 Recommend measures to improve the efficiency and effectiveness of government operations.
 Keep the general accounts of government and preserve the vouchers and supporting papers
pertaining thereto.
 Decide any case brought before it within 60 days.
 Performs such other duties and functions as may be provided by law.

COMPOSITION OF COA:

According to 1987 Constitution, Article IX-D, “The Commission on Audit”:

SECTION 1 (1). There shall be a Commission on Audit composed of a Chairman and two
Commissioners, who shall be natural-born citizens of the Philippines and, at the time of their
appointment, at least thirty-five years of age, certified public accountants with not less than ten
years of auditing experience, or members of the Philippine Bar who have been engaged in the
practice of law for at least ten years, and must not have been candidates for any elective position in
the elections immediately preceding their appointment. At no time shall all Members of the
Commission belong to the same profession.

SECTION 1 (2). The Chairman and the Commissioners shall be appointed by the President with the
consent of the Commission on Appointments for a term of seven years without reappointment. Of
those first appointed, the Chairman shall hold office for seven years, one Commissioner for five
years, and the other Commissioner for three years, without reappointment. Appointment to any
vacancy shall be only for the unexpired portion of the term of the predecessor. In no case shall any
Member be appointed or designated in a temporary or acting capacity.

Planning and Budgeting Linkages:

1. Fiscal Planning
 MTEF – Medium Term Expenditure Framework; key instrument for translating strategic
priorities, 3-year medium term budget.
2. Sectoral Planning – social services, economic services, etc.
3. Regional Planning – coordination between Regional Development Councils (RDCs) and Local
Government Units (LGUs).
4. Program/Project Planning – proposals are submitted to NEDA.
5. Short-term Planning
6. Long-term Planning

FISCAL POSITION OF THE GOVERNMENT

BUDGET SURPLUS BALANCED BUDGET BUDGET DEFICIT

Taxes > Expenditure Taxes = Expenditure Taxes < Expenditure
CONSTITUTIONAL AND LEGAL FRAMEWORK OF PUBLIC FISCAL ADMINISTRATION

CONSTITUTIONAL FRAMEWORK
 1987 Constitution
 Article VI, Section 24: All appropriation, revenue or tariff bills, bills authorizing increase of the public
debt, bills of local application, and private bills, shall originate exclusively in the House of
Representatives, but the Senate may propose or concur with amendments.
 Article VI, Section 29.1: No money shall be paid out of the Treasury except in pursuance of an
appropriation made by law.

LEGAL FRAMEWORK
 Executive Order No. 292 – Administrative Code of 1987
 Presidential Decree No. 1445 – Government Auditing Code of the Philippines
 Republic Act No. 7160 – Local Government Code of 1991
 Republic Act No. 9184 – Government Procurement Reform Act of 2003
o Republic Act No. 12009 – New Government Procurement Act (NGPA)
 Executive Orders, Administrative Orders, Statutes, Memorandum

MAJOR COMPONENTS OF PHILIPPINE PUBLIC FINANCE

1. TAXATION
 Imposition of compulsory levies on individual entities.
 Inherent power of the sovereign government (through legislature).
 Most important revenue generation measure of the government.

Sources of Taxation:
 Constitution, Special laws or Statutes
 Republic Acts, Presidential Decrees, Executive Orders
 Administrative Rules and Regulations
 Administrative Rulings and Opinions, Judicial Rulings

Constitutional Limitations of Taxation:

 Due process of law (Section 1, Article 3)
 Rules of uniformity and equity in taxation (Section 28, Article 6)
 No imprisonment of non-payment of poll tax (Section 20, Article 3)
 Non-impairment of obligation and contracts (Section 10, Article 3)
 Prohibition against infringement of religious freedom (Section 5, Article 3)
 Prohibition against appropriations for religious purposes (Section 29[2], Article 6)
 Exemption of all revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes from income, property and donor’s
taxes and customs duties (Section 4[3 and 4], Article 14)
 Concurrence by a majority of all members of Congress in the passage of a law granting tax
exemptions (Section 28[4], Article 6)

Inherent Limitations of Taxation:

 Purpose – Taxes may be levied only for public purposes.
 Territoriality – The State may tax persons under its jurisdictions.
 International Comity – The property of a foreign state may not be taxed by another.
 Exemption – Government agencies performing governmental functions are exempt from
taxation.
 Non-delegation – The power to tax being legislative in nature may not be delegated (subject to
exceptions).

2. BUDGETING
 Financial plan of a government for a given period.
 It specifies the programs, projects, services and activities.
 Restrictions on Budgeting:
 The President have executive rights to propose the budget.
 Congress can only reduce or allocate appropriations in the proposed budget.
 The President can use a line-item veto.
 Highest allocation of education.
 Separation of the State and Church.
 Special funds are for special purposes only.

3. ACCOUNTING AND AUDITING

 ACCOUNTING – an art of recording, classifying and summarizing, in a significant manner and

in terms of money and transaction.
 AUDITING – examination of information by a third party than the preparer or user with the
intention of establishing its reliability.

END

Prepared by: Sir Arvs 